Ryan Haley is back to bring you the Running Real Estate Podcast.
As we transition through the first quarter of 2023, it would be good not just to give you the typical weekly real estate market report for Delmarva, but break it down and get into some more details.
Interestingly enough, if you ever decided to search for real estate, you’re going to be delivered real estate content, and some of it is going to be good news, and some of it, ironically enough, will be bad news. And what we know by being in this business is that headlines do more to terrify than they do to clarify. So what’s best is to give you an update as to truly what’s going on and debunk and get rid of some of these myths that people hear. That being said, obviously the economy as a whole, there’s a lot of moving parts. We’ve seen the FED continuing to try to stamp inflation and bring that down. We’ve seen some bank crisis here as of late, and then the “R” word has kind of showed itself again, the recession word, which honestly, we’ve been in a recession before, but they’ve decided to change the rules as to what a recession is.
So, what is going on in the real estate market?
A few things to cover.
Number one, what are we seeing locally here from a sales trend-wise? Number two, how do we compare sales today versus pre-pandemic levels?
What does the current demand look like? What’s happening with prices? Are we seeing prices go up? Are we seeing prices go down? What’s going on with affordability? Can people afford homes with these higher interest rates and higher prices?
And then nationally, what do we see as far as home sales, distressed sales, something we haven’t heard in a while, but every once in a while, someone will say, “I’m going to wait for a foreclosure. You know, send me all of the foreclosures and short sales. I want to buy distressed property.” And then, inventory levels. Are inventory levels and monthly supply increasing, or are they going down? And then finally, we’ll wrap things up with kind of a recap as to where interest rates are and then what our projections are as we move into the rest of 2023.
Weekly Update for Delmarva
Let’s start with the typical update here for Delmarva.
Worcester County Market
For the second week now into April, we’re gonna start with Worcester County. In the last seven days, we saw 51 new properties come on the market, while at the same time, we had 64 properties go under contract. The trend, as you know if you’ve been watching these reports, continues. We are out-selling the current inventory here in Worcester County, Maryland.
All inventory county-wide, there are currently 263 properties for sale, while in the last 30 days, we had 204 properties go under contract. That gives us currently 1.3 months’ supply.
Sussex County, Delaware Market
Moving into Sussex County, Delaware. Currently, in the last seven days, we had 126 new properties come on the market, while at the same time, 153 have gone under contract, outselling the inventory.
County-wide, currently, there are 1,234 actives for sale, while in the last 30 days, we sold 456 properties or had 456 properties go under contract. It gives us 2.7 months’ supply in Sussex County, Delaware.
Wicomico County, Maryland Market
Rounding out Delmarva, Wicomico County. Last seven days here, we had 21 new properties come on the market and 33 have gone under contract and or are pending sale. And this is kind of an interesting situation here where we have 117 current actives for sale in Wicomico County, but we’ve outsold that number by a hundred. We had 119 go pending in the last 30 days, so that’s giving us less than one month’s supply, or 0.98 months’ supply in Wicomico County.
What Happened in the First Quarter of 2023?
Let’s look at what has gone on in the first quarter (Q1) of 2023 as far as actual closings. We have a tendency to look at what I call lead measures, you know what’s truly going on. The lead measures are the contracts being written, the ones going under contract, the inventory currently, as opposed to the lag measures. The lag measures are what is actually gone to settlement, what’s made it to settlement.
Worcester County Q1 2023
If we look at year-to-date in Worcester County, we’ve had 447 closed transactions. These are properties that have gone to settlement.
How does that compare to 2022? In 2022, we had 635 closings in the first quarter. So, currently, we are down 30% year to date as far as the number of transactions.
Let’s compare that to pre-pandemic levels. Let’s go back to 2019. So, keep in mind, this year, year to date, 447 closed. Back in 2019, we had 532 properties close in the first quarter. So, we are actually down. We’re still down 16 percent of what we saw in 2019, even when we compare it to pre-pandemic levels.
Sussex County Q1 2023
In Sussex County, Delaware, interestingly enough, we had 1,233 sales here year to date. In 2022, we had 1,607. So, we are down just a little bit, less than we are in Worcester County. We’re down 23 percent over what we saw in 2022 compared to 2019 pre-pandemic when we had 1,186 settlements. So, actually today, we are up 4% as far as the number of closings year to date in the first quarter of what we saw pre-pandemic.
Wicomico County Q1 2023
Wicomico has had 243 closings year-to-date compared to last year’s 349, resulting in a 31% decline in transactions. This is the greatest decline seen in terms of number of transactions. Comparing it to 2019 pre-pandemic, there were 250 closings in the first quarter, resulting in just a 2% decline. Interestingly, one reason for the decline is the lowest inventories seen in quite some time. Properties are getting gobbled up quickly when they hit the market. There are buyers who want to buy, but the inventory just isn’t there.
National Market 2023
Moving on to national demand, the current market is showing strong demand, which is good news. There was a weaker demand in March, but nationally, we are back to a good level. Turbulence in the financial markets is putting downward pressure on rates, which is benefiting borrowers in the short term with lower interest rates. This information is coming from the chief economist of Freddie Mac.
What Does That Mean for Home Prices?
Is our price going up? Are they going down? And some of that obviously has to do with our location and where we are in the country. Let’s go through a couple of year-over-year appreciation for the top 20 cities in our country.
Atlanta is up 8.4%, that’s the biggest one of the biggest winners. Boston up 4.2%, Charlotte up eight points, Cleveland up 4.8%, Dallas up 5%, Denver up 1%, Las Vegas point 4%, so not quite as much of an increase there, and Los Angeles 0.9%. The biggest winner as far as year-over-year appreciation is Miami at 13.8%. New York 5.2%. Phoenix is flat 0%.
Here’s where it gets interesting. If you look at a map, it’s pretty interesting, anything to the left of Texas seems to have seen a greater slowdown as far as price appreciation, and in some cases, it’s actually we’re seeing prices decrease. East of Texas seems to be holding its own, especially the southeast, and that’s evident with that 13.8% year-over-year in Miami. It’s the same with Tampa with 10.5% increase in the last year, but Portland is down 0.5%, San Diego down 1.4%, San Francisco down 7.6%, and then Seattle down 5.1% as far as year-over-year appreciation.
This is coming from Selma Hepp, who is the chief economist for CoreLogic, and the quote there is “declines in the west are due to the tech industry slowdown and a severe lack of affordability,” meaning prices got too high along with interest rates, and that’s after decades of under supply. So, for the last decade, we did not see enough homes inventory.
Moving into the region here, if we look at year-over-year appreciation, national rate of appreciation is 5.3%. The greatest area where we saw appreciation year over year is the South Atlantic, where we’re up 9.6%. The Mid-Atlantic is up 6%. New England, 7.1%, East South Central is up 7%, and the East North Central is up 5.5%. If we move into the West Mountain, we’re at 1.4%, and then, the Pacific has been flat.
Year over year, price appreciation has been strong. But if we move and look at the month-over-month price appreciation, that’s where we’re starting to see a slowdown.
This is from January 2023, month over month, a percentage of appreciation in our top cities. So, this would be from December to January. Essentially, what happened in that one month? Atlanta was flat, Boston just 0.3%, Charlotte 0.2%, Chicago was flat, Cleveland 0.1%, Dallas down 0.6%, Denver -1%, Detroit down 0.1%, Las Vegas down 1.1%, Los Angeles down 0.3%. That pretty much holds true through Miami, New York, Phoenix, Portland, and San Diego.
We’ve seen this decrease in price appreciation month over month. So, although the year-over-year has been strong, the month-over-month has definitely shown a slowdown.
Now, keep in mind these numbers are from the first quarter and the beginning of the first quarter. So, we’ll have to see where things shake out as we get into the second quarter, which is the peak of our spring buying season.
All in all—this is from Black Knight from the February Mortgage Monitor, home prices nationally are down 2.6% from their peak in 2022. So, down 2.6 percent when you look at the month over month and the total amount down from their peaks of 2022.
That was taken into consideration an average of three reporting agencies. Moody’s said we’re down 2%, Freddie Mac said 2.5%, and then Black Knight was at 2.6%.
Will We See Affordability Increase?
That’s a question that a lot of people have, and it’s going to really depend on where you are in the country and how much supply we have when combined with the mortgage interest rates and where rates will go.
But, one thing to look at, and this is from the National Association of Realtors that tracks all the way back to September, actually January of 2021, what the average monthly mortgage payment amount was. Currently, we are sitting at $1,807 as the average monthly mortgage payment that Americans are paying throughout the country. This peaked back in October at $2,043 a month and has since been declining every month. That’s based on prices softening in certain areas as well as interest rates which have declined.
Keep in mind that last fall, the end of last fall, we were seeing interest rates that were at or above 7%. I’m going to talk about that in a minute here. But, it’s been great that we have actually seen these interest rates come down a little bit, which is providing relief for home buyers and people who are borrowing money through a mortgage right now.
In October, they peaked, $2,043 was the average a month. Then, in November, it was $1,993, December $1,869, and then, the lowest level that’s been reported thus far are at $1,807 a month on average. So, what that translates into is that it’s becoming more affordable currently in the last four months here or so to be able to purchase a home and have a mortgage.
Home Sales and Days on Market
In February, the average days on market nationwide was 34 days. We’ve seen that increase every month going back to August.
In July, across the country, we were at an average of 14 days on market, which then went to 16 days in September. We were at 19 days in November, 24 days in December, 26 days, and then in January, 33 days on market was your average nationwide. And in February, we were at 34 days. So, the rate at which it’s increasing is slowing down a little bit.
It was interesting to see when this actually peaked, and we have to go all the way back to February 2019. At the highest levels that we saw at that point, it was taking on average 49 days for a property to sell. So what is fascinating is we talk about the Covid years here, the pandemic years, the last three years, but even before we were into the pandemic market, we still had a very severe lack of inventory, and homes were selling at a fairly good clip.
Keep in mind that anything less than six months’ supply, that is, six months’ supply and less is considered a seller’s market. Anything over six months’ supply is considered a buyer’s market. And when we’re looking at the average home selling in 34 days, that’s pretty quick. So even prior to the pandemic, we definitely had low inventory, and homes were selling relatively quickly.
Existing Home Sales
This is a number that’s interesting because we’re always looking at the number of transactions that every realtor can do. The number of realtors has increased drastically here since the pandemic. It was a profession that a lot of people wanted to get into. But when you look at how many agents there are and how many, for home buyers and home sellers, how many homes are actually going to sell on an annual basis, the existing home sales basically peaked in January of 2021. At that number, we were at 6.8 million existing home sales.
Fast forward to today, and the projection here in January, we’re selling them currently at a pace of just over 4.5 million on an annual basis. So if we continue to sell at the level we’re selling, we will sell about 4.5 million homes nationwide here in 2023, down from the peaks of almost 6.8-6.9 million. There is definitely a decrease in the number of transactions due to a lack of inventory.
Existing Home Sales by Region
This is interesting. The West has seen a decrease in the number of sales on average by 28%. In the South, even though it’s the most robust or one of the most robust areas, we’ve seen a decrease in existing home sales year over year by 21%. The Midwest is down 18.7%, and the Northeast is down 25.7%. That gives us an average nationwide of year-over-year decrease in existing home sales by 22.6%.
What percentage of distressed properties are actually contributing to the property sales? Interestingly enough, distressed sales, foreclosures, and short sales represented 1% of the sales in February. This is an interesting number.
If you go all the way back to January of 2012, at that point, the percentage of annual sales that were taking place that were distressed properties were as high as 35%. Back then, there was more on the market, and the properties that were selling were the distressed properties because they were priced the most aggressively, and those were the ones that we were helping a lot of buyers secure at that time. But it peaked at about 35%, and that continuously has come down over the years.
Pre-pandemic, back in 2019, we were seeing about 5% of the total sales that were foreclosures and short sales. Currently, we are just over 1% of the total sales that are going to take place that are foreclosures and short sales. And with the current inventory and the current demand, we’re not anticipating that number to necessarily increase. So those of you who’ve kind of been waiting and wondering, are we going to see more foreclosures coming into the mix? We may, but it’s still not going to be a huge percentage of the overall market.
Year-Over-Year Price Change
So, where are we going? What’s forecasted year-over-year percentage change in price? And currently, nationwide, if you average everything in, we’re at a pace of 4.4% appreciation year-over-year. That was based on February numbers. So we’re seeing an increase of 4.4%. The forecast is to be around 3.7%. We’ll have to see if that slows down at all and kind of normalizes to that 3.7 percent, but that is the forecast as far as appreciation goes.
Change in Inventory
When it comes to the number of homes that are currently for sale, nationwide, we’re down about 2.7% month over month. And then, if we look at the actual last 12 months, percentage of inventory, we’re actually up a little bit. We have 2.6 more homes for sale in February than what we did the February before. So that’s good news for you buyers out there that are trying to find that home that’s going to work best for you.
Mortgage Interest Rates
Where are rates today, and then where do we anticipate they might end up?
For mortgage rate projections, and this is as of April, as of today, we’re seeing 30-year fixed rates that are just under 6.5%. And the projection for Q2 here when we look at Fannie, The Mortgage Bankers Association, and the National Association, and we average all three, we are expected to see mortgage rates that are going to be about 6.3%.
When we go into Q3, we’re actually starting to see that decrease closer to 6%. Six point seven percent is the average there. Interestingly enough, the Mortgage Banker Association and NAR both believe that we’ll see interest rates consistently under 6% as we get into Q3.
When we get into Q4, even more of a decrease. 5.77% is what is expected to be the average 30-year mortgage rate, and then Q1 of next year even a little bit less, 5.57% is the projection as far as where mortgage rates could be.
So, mortgage rates are projected to come down, but not drastically. We’re not going to see that 2.5%, but we could see rates in the mid to upper 5s in the next year, which is a very sustainable rate.
What we have to look at is: what are our goals and where do we anticipate we want to be as far as our inventory of homes that we own? What’s most important to our family? What’s most important as far as a monthly payment goes? What do you feel comfortable paying? And that’s ultimately where a lot of us should focus, as opposed to what the actual interest rate is.
Most people have no idea what their interest rate is in their car. We just know we can afford it and we can swing that monthly payment. So, the same holds true here when it comes to housing. Housing is probably the largest financial investment that you’ll make, but it’s also the most personal and the one that really defines who you are as a person, as a family, as your where you spend the majority of your time besides work. You know you’re at your house the majority of time, so the ability to secure that right home and feel comfortable about the monthly payment is probably what’s most important to a lot of us.
So, there you have it. That is a very lengthy, wordy market report for you, a kind of a recap as to the state of the market, what we’re seeing here for the last seven days, in Q1 in our local markets, and then kind of what we saw nationally and what we’re projecting as we move into the second quarter here of 2023.
If there are any segments of the market that you would like to know more information on, please let us know. we’d be happy to break it down kind of on a smaller level here to either subdivisions, towns, or communities, and give you a snapshot as to what we’re seeing in the real estate market.